Deep cuts: reaching the core

Imagine you're on a sinking boat. You could spend an hour carefully deciding which items to throw overboard. Or you could start throwing things now and think later.

In a crisis, most business owners make the first mistake. They cut a little bit each month — cancel a subscription here, reduce a budget there. This death by a thousand cuts approach keeps everyone anxious for months while the company slowly drowns anyway.

The simple truth: One painful, smart cut is better than ten small cuts spread over six months. The goal isn't to save a little money. The goal is to reach a point where your business can survive on its own, without hoping for a lucky sale or a last-minute loan.

Most businesses have a hidden pattern: about 20% of what they do creates 80% of their results.

Finding the core

Look at your products, customers, and team. Ask: which parts generate most of the money?

Maybe you sell five products, but two of them bring in 80% of revenue. Maybe you have ten employees, but three of them do the work that actually pays the bills. Maybe 50 customers give you 80% of your income.

That 20% is your survival core. Everything else is extra weight.

Cutting the extra weight

Once you know your core, the math becomes simple. If a product, person, or expense isn't part of that 20%, it's a candidate for cutting. This doesn't mean you hate those things — it means you can't afford them right now.

Example: You have a marketing team of 5 people. One of them runs the ads that bring in customers. The others work on brand awareness projects that might pay off in a year. In a crisis, you keep the one who brings in money today.

The 80/20 rule tells you what to cut. But before you start firing people, understand why smaller teams often work better anyway.

Here's something that seems backwards: a smaller team is often faster than a larger one.

The meeting problem

When you have 20 people, they spend half their day in meetings just agreeing on what to do. When you have 5 people, they just do it.

Every person you add to a team adds communication overhead (time spent coordinating instead of working). Person A needs to talk to Person B. Person B needs to update Person C. Soon, everyone is talking and nobody is working.

The exception: production capacity

Some jobs need specific headcount. If it takes 10 people to pack 1,000 boxes a day, you can't fire 8 and expect the same output. Cut production staff only if your orders have dropped and you don't need that capacity anymore.

The math to remember

If cutting one manager saves $8,000/month but only costs 2 hours of your time per week to cover their work, that's a good trade in a crisis. If cutting one worker means you can't fulfill orders, that's a bad trade.

Now you know what to cut and why smaller is often better. But how do you know when you've cut enough? There's a simple test.

There's one test that tells you if you've cut enough. It's called default alive.

The test

Ask yourself: If our sales stay exactly the same as last month, and we don't get any new investment, will we run out of money?

• If the answer is YES (we'll run out) → you're default dead
• If the answer is NO (we can survive) → you're default alive

Your goal in a crisis is to cut until you become default alive.

How to calculate it

Compare your monthly sales to your monthly expenses.

• If sales are higher than expenses, you're default alive.
• If expenses are higher than sales, you're default dead. Keep cutting until the math flips.

Example:

• Monthly sales: $30,000
• Monthly expenses: $40,000
• Result: Expenses exceed sales by $10,000/month (default dead)
• You need to cut $10,000 in expenses OR increase sales by $10,000 to become default alive

Cutting costs is the right move in a crisis, but it fails in specific situations:

Cutting what makes the money (sales-driven businesses). You lay off the salesperson who brings in 40% of your revenue because their salary is high. You saved $6,000/month but lost $12,000/month in sales. This is not a problem with the 80/20 rule — it's a problem with identifying the core. That salesperson was part of the 20% that creates the results. The mistake is cutting based on salary size instead of revenue contribution. Common in agencies, consulting, and SaaS companies where a few people drive most of the revenue.

Not having cash for severance (any industry with employees). In many countries, you owe employees money when you fire them — final paycheck, unused vacation, legally required severance. If you have 10 people to fire and each costs $5,000 to let go, you need $50,000 today. Especially risky in countries with strong labor laws like Germany, France, or Brazil.

Cutting quality instead of fat (product businesses). A design agency fires its senior designers and delivers amateur work. A tutoring company cuts its best tutors and loses students. A bakery replaces premium ingredients with cheap substitutes and watches regulars disappear. These businesses need specific talent or quality inputs to deliver value — cutting them destroys the product itself.

Frozen capacity businesses (manufacturing, fulfillment). If it takes 10 people to pack 1,000 boxes, you can't fire 8 and maintain output. Only cut production staff if orders have actually dropped.